Integrity means doing no harm

Bruce Brammall, The West Australian, 30 April, 2018

Integrity. What does it mean to you?

A large number of people in the financial industry don’t seem to know what integrity means. Or perhaps they do, but simply don’t possess any.

Australians are understandably wondering how deep this rot runs. Is the Royal Commission just scratching the surface? Or will they get enough scalps to force cultural change across the industry, right through the ranks?

The financial advice industry is, in all likelihood, filled with no more ratbags than any other profession. The antics uncovered in Royal Commissions into policing, organised religion, unions and the construction industry have similarly horrified the nation in recent decades.

For what it’s worth, here’s what integrity in the professions of financial advice and mortgage broking (as I’m both) mean to me.

It means being honest. Having high moral standards. And sticking to them.

Firstly, it means something similar to what is often referred to as the first rule of a doctor’s Hippocratic Oath: “First, do no harm”.

The financial advice industry is there to help people with their finances. Unfortunately, help is a term without a concise meaning. It can be rubbery. (Though no less rubbery than for other professions, including medicine, the law, policing and teaching.)

If an adviser knows a product won’t be in the best interest of a client, don’t recommend or “sell” it.

For mine, that includes the entire class of products known as “agricultural managed investment schemes”. (Think trees, olives and ostriches.) I’ve never seen one that has met prospectus forecasts. I’ve challenged industry representative to show me examples that have. Nil.

And it includes property sold by developers, as I’ve made clear many times before. Financial advisers (and mortgage brokers and accountants) are offered fortunes – often up to $30,000 or $40,000 a client – for successful referrals to a property developer.

My belief is that most properties sold by developers will end up costing buyers $100,000 or more, in actual losses, in missed capital gains, over the first five or ten years. What’s that client going to say about you five years down the track?

It means putting client’s interests first, not your own.

It took a while, but this eventually become law for financial advisers, in what is known as the “best interests duty”.

Again, for me, this means helping clients, even when you know you are going to lose money. When the help that you give them won’t be covered by the fees that you charge or receive. They need financial advice. They will appreciate it. You’ve done good, at a personal cost.

Karma – often by way of referrals from those loss-making clients – is the pay-back, as I’ve discovered in my time in business. A happy, if unprofitable, client, is a client who will stay with you, refer to you and will, usually, become profitable in the medium-term anyway.

It means thinking beyond the short term.

Financial rewards for advisers and brokers are too often for performance in the short term. The industry has made changes to address this. The Royal Commission will, no doubt, recommend more.

But the best advisers and brokers in the industry have ALWAYS taken a long-term approach, to both their clients well-being and the well-being of their reputation.

It’s about the culture of a business.

Staff should get direct leadership on what’s right and what’s wrong. Whether that’s in a small financial planning or broking firm, or a major industry behemoth.

They should know what to do if they see something wrong, if a client has a concern, if a mistake has been made. It needs to be brought to the attention of superiors, to be followed up by actions to correct it immediately. No matter the cost.

It’s easily summed up.

Would your parents be proud of you? Of that choice, of that action, of that recommendation?

When advisers sit with clients to do what’s known as a “risk profile”, to determine how aggressively they should be invested, they often talk to clients about the “sleep at night” test.

They too need to know that their ability to “sleep at night” will depend on their integrity.

Most of the financial advice industry, including brokers and advisers, sleep fine. And they should. But what the Royal Commission has uncovered will mean that many aren’t sleeping at all right now. And rightly so.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.